U.S. Markets closed

Autoliv Inc (ALV) Q1 2019 Earnings Call Transcript

Motley Fool Transcribers, The Motley Fool
Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Autoliv Inc  (NYSE: ALV)
Q1 2019 Earnings Call
April 26, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to today's Autoliv First Quarter Financial Results 2019. At this time, all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. (Operator Instructions). I must also advise you that this conference is being recorded today, Friday, the 26th of April 2019.

And, I would now like to hand the conference over to your speaker today, Anders Trapp, Vice president, Investor Relations. Please go ahead.

Anders Trapp -- Vice President of Investor Relations

Thank you, Sarah. Welcome everyone to our first quarter 2019 earnings presentation. Here in Stockholm, we have our President and CEO, Mikael Bratt, our interim Chief Financial Officer, Christian Hanke and myself Anders Trapp Vice President of Investor Relations. During today's earnings call, our CEO will provide a brief overview of our first quarter results as well as provide an update on our general business and market conditions. Following Mikael, our interim CFO, Christian Hanke will provide further details and commentary around the Q1 2019 financial results and outlook for full year 2019. At the end of our presentation, we will remain available to respond to your questions and as usual the slides are available through link on the home page of our corporate website.

Turning to the next page, we have the Safe Harbor statement, which is an integrated part of this presentation and includes the Q&A that follows. During the presentation, we will reference some non-U.S. GAAP measures. The reconciliations of historical U.S. GAAP to non-U.S. GAAP measures are disclosed in our quarterly press release and the 10-Q that will be filed with the SEC, will figures in this presentation refers to continuing operations i.e. excluding discontinued operations. Lastly, I should mention that this call is intended to conclude at 3:00 pm Central European Time. So, please follow a limit of two questions per person.

I will now turn it over to our CEO, Mikael Bratt.

Mikael Bratt -- CEO

Thank you. Thank you, Anders. Looking now into the Q1 2019 highlights on the next slide. Overall, our results were in line with our expectations, despite the effect of the labor conflict in Mexico. Our people did a good job managing the largest quarterly light vehicle market decline in the past decade. The sharp decline in light vehicle production was more than offset by continued growth from recent launches. We were able to outpace global light vehicle production by almost 9 percentage points.

However, we have experienced continued headwinds from raw material pricing, which together with a lower capacity utilization in some regions, (Technical Difficulty) related costs significantly more than offset the operating leverage on the sales growth. We saw a clear improvement in launch related costs compared to the fourth quarter 2018. Although, we still expect it will take a few more quarters to be back at normal launch cost levels.

The market driven decline in running production and a ramp up of demand in new launches created a challenging situation for the organization. It needs to accelerate and brake at the same time. Additionally, new launches, as is normal, have lower profitability until production is fully ramped up to the designed line capacity. We have implemented a number of actions to mitigate the effect from the lower light vehicle production. We had a solid operating cash flow in the quarter enabling us to exceed last year's level for continuing operations.

Also although, I'm pleased with the social unrest in Mexico is closed, I am never satisfied when we have disturbances and cost increases for us and customers. The strike was not directed toward Autoliv as the company, it involved 59,000 people in the City of Matamoros. This strike started with workers in the factories of 45 different companies and eventually extended 200 companies. Our order intake share remains at a good level, while OEM order activity was relatively modest in the quarter.

Looking now at the recap of the first quarter financial performance on the next slide. Executing on the strong order book, this quarter marked the fourth consecutive quarter of substantially higher organic growth compared to the market. Our consolidated net sales declined by 3% compared to the same quarter of 2018, impacted by weaker currency, with organic sales increases by close to 2% despite the global light vehicle production falling by close to 7%.

Adjusted operating income excluding costs for capacity alignment and antitrust related matters decreased by around 32% from $245 million to $166 million impacted by the strike in Matamoros, elevated launch related costs, uneven utilization of our assets and raw material pricing.

The adjusted operating margin decreased by 320 basis points to 7.7% compared to the same quarter of 2018, excluding the temporary effects on the Matamoros conflict, we would have been 100 basis points higher or one percentage point higher. EPS diluted decreased by $0.55 compared to the same quarter of 2018, almost entirely as a result of lowering operating income, partly offset by lower effects from tax items.

Looking now at the market development, the negative trend that started around nine months ago has accelerated in the first three months of this year. In the first quarter 2019, global light vehicle production is estimated to have fallen by close to 7% according to IHS, the worst Q1 performance since the financial crisis in 2008-2009. China's new light vehicle market continued to decline in March, but at a slower rate than recent months.

Wholesale dropped 6.9% of the slumping 17% in the first two months. However, the decrease in new vehicle sales at retail in the first quarter was much milder indicating a destocking at dealers. U.S. light vehicle sales surged in March to a soar (ph) of 17.5%, strongly rebounding from sluggish results in the two months of the year -- in the first two months of the year.

Inventory increased by 260,000 units during the quarter to 4.1 million. However, we believe that the inventory is not enough above the estimated optimum level that it should be considered a problem. As a result, light vehicle production in North America decreased by 2.6% which was three percentage points lower than the regional forecast at the beginning of the quarter.

European light vehicle production declined by 4.9% in the quarter continuing the downward trend that started with introduction of WLTP in September. The decline was concentrated to the important West European market that dropped 7%, while Eastern European production decreased by 0.6%.

Looking to our sales growth on the next slide, despite the largest quarterly decline in LVP, since the financial crisis, our growth momentum continued in the first quarter. The growth was mainly driven by the large number of product launches in North America, but also supported by positive development in the rest of Asia especially in India and Thailand.

Consolidated net sales in the first quarter declined year over year by 3% to $2.2 billion with an organic growth of 2% offset by negative currency translation effects of 5%. In the quarter, North America contributed with $79 million to the organic growth. The sales were driven by previous quarters tight (ph) launches, mainly with FCA, Honda and Nissan. The organic growth of close to 13% was 15 percentage points higher than a light vehicle production growth.

Our sales in South America increased by 16% organically despite a weak LVP. In Europe, we have been affected by weaker demand from a number of OEMs. Despite the negative mix, with the important West European market declining more than Eastern European market, our sales decline was in line with the region's LVP. One of the key sales drivers in the quarter was steering wheels to Daimler where we replaced another supplier on several running car models.

Sales in China declined organically by 4% outperforming light vehicle production by around 10 percentage points. The lower sales was mainly a result of domestic allowance falling 16% organically, which is basically in line with their LVP. This was partly offset by higher sales to global OEMs, largely due to stronger performance with Honda and VW. Sales in rest of Asia outgrew light vehicle production by more than 6 percentage points. The growth was mainly driven by sales to Japanese OEMs, such as Toyota, Suzuki and Honda.

Looking into our key model launches in Q1 2019 on the next slide. Here you see some of the key models which have been launched during the first quarter. We continued to have a high level of launch activities to support new vehicles to be introduced over the coming quarters. These models are well distributed across the globe. We are pleased to show a new model the Range Rover Evoque, with pedestrian protection airbag. I want also to especially mention the Toyota Corolla, as it is a truly global model which will be built in North America, Europe, China and we have increased content in this generation.

I will now hand over to our interim CFO Christian Hanke to speak to the financials.

Christian Hanke -- Interim Chief Financial Officer

Thank you, Mikael. Looking now to our financials on the next page, we have our key figures for the first quarter, including negative currency translation effects of around $106 million and organic sales growth of $39 million, our consolidated net sales reach $2.2 billion. Our gross margin declined year-on-year. The net operating leverage on the higher sales was more than offset by higher commodity costs and costs related to the preparation for upcoming launches as well as ramp up of recent launches.

Additionally, we experienced lower capacity utilization in most regions due to the sharp drop in light vehicle production and temporary costs related to the strike in Matamoros. Our adjusted operating margin of 7.7% declined year-on-year, mainly due to the lower gross profit and a slightly higher or RD&E and SG&A in relation to sales. Although, they were roughly unchanged in absolute dollar amounts. our reported EPS decreased by $0.55 mainly as a result of lower operating income. Our adjusted return on capital employed and return on equity were 19% and 22% respectively. Our dividend of $0.62 was $0.02 higher than a year earlier.

Looking now on the next slide, our adjusted operating margin of 7.7% was 320 bps lower year-on-year. As illustrated by the chart, the adjusted operating margin was impacted by higher raw material costs of 80 bps, 30 bps from SG&A and RD&E, slightly offset by 25 bps from positive FX effects.

In addition, we had temporary costs for the social unrest in Matamoros, Mexico. Excluding this cost, our adjusted operating margin would have been 100 bps higher than the 7.7%. The negative leverage on the higher sales was as a result of higher RD&E expenses, other launch related costs and underutilized capacity of our supply chain production and logistics systems.

The 10 bps higher RD&E was driven by the high number of product launches especially in China. In the quarter, launches in China alone rose by more than 80%. The profitability development of our products usually follow a typical generic product lifecycle, as illustrated on the slide on right hand of the corner and I will try to explain in generic terms the principles behind how profitability over a life cycle works out.

So, please bear with me here for a few moments. During the development phase, costs will be expensed driving RD&E expenses without additional income. We also invest in new production equipment at this stage. In the introduction or launch phase, revenue is not enough to cover all of the additional expenditure to launch products. During the growth or ramp up phase volumes increase and productivity improves, results typically move from loss to profit and we start to recover engineering and launch costs. In this phase, continuous improvement activities are implemented to improve productivity and profitability further.

So, continuing with the quarter, the sharp drop in LVP has mainly affected our more mature products with their generally higher profitability and therefore there is a greater impact from products that are in the earlier phases of their product life cycle. This has subsequently resulted in a period with the product mix carrying a lower profitability. Despite this negative mix development, our Q1 performance was in line with our expectations supporting our full year indications.

Looking more into our cash flow on the next slide. Operating cash flow was strong in the quarter and amounted to $154 million, almost twice the level achieved for continuing operations in the same quarter of 2018. Capital expenditures amounted to $108 million in the first quarter, which is about 5% in relation to sales. In the first quarter of 2018, capital expenditures for continuing operations were $110 million or 4.9% of sales. For the full year 2019, we expect capital expenditures to decline in relation to sales after at the ratio begins to normalize toward the historical range of 4% to 5%. Looking at our full year 2019, excluding any discrete items, we expect our operating cash flow from continuing operations to improve year-on-year.

Now, to our earnings per share on the next slide, we have the EPS development. Reported earnings per share declined by $0.55 to $1.27. The main drivers behind the decrease are $0.65 from lower operating income and $0.05 from higher financial net, partly offset by lower tax and lower costs for capacity alignment and antitrust related matters. In Q1 2019, the adjusted earnings per share decreased by $0.63 cents to $1.20 compared to $1.83 cents for the same period one year ago.

Moving on to the balance sheet, on the next slide. And as you know we have a long history of a prudent financial policy. Our balance sheet focus and shareholder-friendly capital allocation policy remains unchanged. Also, this policy to maintain a leverage ratio of around one times net debt-to-EBITDA within the range of 0.5 times to 1.5 times. As of March 31, 2019, the company had a leverage ratio of 1.6 times which is 0.1 (ph) higher compared to December 31, 2018.

The main reason for the increase is the lower EBITDA in the quarter. Our strong free cash flow generation should allow deleveraging and should allow continued returns to shareholders, while providing flexibility. We are aiming to be well within the target range by the end of the year 2019, despite the fine for the remaining portion of the EC investigation that would be paid in the second quarter. This excludes any other discrete items and other non-foreseeable changes to our business.

Looking at our market development for the rest of the year on the next slide, the outlook for major light vehicle markets has become increasingly more uncertain due to weaker consumer confidence, trade tariffs and regulatory changes. According to IHS, the U.S. market is seen as slightly down while Europe and China are expected to stabilize from the recent volatility. Since January, IHS has reduced their full year 2019 expectation of global light vehicle production by 1.9 million units to 90.4 million or a reduction by 2 percentage points.

The WLTP impact in Europe has faded, however, we see an increasing risk for uncertainty among end consumers on what drivetrain technology to choose. Corporate and fleet sales seem to be less affected. Other factors to watch are effects from Brexit and the new Real Driving Emission testing, RDE that will be mandatory from September 1st.

In China, IHS expects the softness to continue in the second quarter forecasting a decline about 3% in light vehicle production year-over-year. As inventory levels are relatively high and the recent trend in sales have not substantially improved, we believe there is some downside risk to this estimate. However, we have heard encouraging positive signals from a number of OEMs in China pointing to a better second half of 2019. Additionally, policy makers have outlined plans to implement more stimulus measures to boost the economy.

Our base scenario for global light vehicle production in 2019 is in line with IHS (inaudible) decline of 1%. We expect to outgrow light vehicle production at a similar level as we did in 2018, which was almost 6 percentage points.

Turning the page, we have summarized our full year 2019 indications, despite the weaker than market development, higher cost for raw materials and cost related to the Matamoros strike, our full year 2019 indication excluding currency translation effects remains unchanged, since we last reported in January. Full year indication assumes mid-April exchange rates prevail and excludes cost for capacity alignment and antitrust related matters.

Our full year 2019 indication is for an organic sales growth of around 5% and a negative currency translation effect of around 2% resulting in consolidated net sales growth of 3% for 2019. Our indication for the adjusted operating margin is around 10.5% for the full year. We expect the 2019 raw material cost increase to be at least as much as it was in 2018.

We anticipate the currency effects on the operating margin for 2019 to be neutral. The projected tax rate, excluding unusual items is expected to be around 28% for the year. The projected operating cash flow, excluding any discrete items is expected to improve compared to 2019. The projected capital expenditures in relation to sales for the year 2019 is expected to decline compared to the 5.6% for continuing operations in 2018.

The projected RD&E in relation to sales for the year 2019 is expected to decline compared to the 4.8% from continuing operations in 2018. We expect the leverage ratio to be well within our target range of 0.5 times to 1.5 times by the year end 2019, excluding any unforeseen discrete items.

I will now hand it back to Mikael for some closing remarks.

Mikael Bratt -- CEO

Thank you, Christian. Turning the page, we have quoted (ph) 2019 focus areas on the slide here and as you know, we always strive for improved products, services, processes and costs. These continuous improvements have been and remain key for Autoliv in improving profitability and winning new contracts.

Geopolitical uncertainty has been increasing, volatile raw material prices, trade tariffs, Brexit, new emission regulations as well as more local issues such as increasing difficulties to pass the border between Mexico and the U.S. These developments lead to increased uncertainty. As the company, we are taking a proactive approach toward these geopolitical challenges.

We aim to address volume and cost challenges with cost reduction activities including hiring freeze, reduction of temporary personnel and under cost measures. We have implemented actions to improve effectiveness of the product launches, which already have led to significant improvement of which over the course of 2019, we expect will improve our product launch cost effectiveness further.

In addition as the number of launches are stabilizing at the new higher level, we believe we can gradually increase focus on productivity improvements through operation excellence, while our launch related costs gradually decline. In parallel, we are streamlining product design and engineering to speed up new launches and improve engineering efficiency.

We are managing raw material cost increases by seeking various forms of compensation, reengineering our products and by other measures. As light vehicle market may remain volatile, we will monitor and manage accordingly, while we never lose focus on saving more lives.

Turning the Page. Autoliv will host its next Capital Market Day for investors, analysts and financial journalists, on November 19, 2019. The purpose of the event is to give an update on the strategy and development of the Autoliv Group and its worldwide operation. We are happy to invite you to our launch hub in Salt Lake area Utah, USA, where we have the world's largest inflator manufacturing facility as well as the complete chain of production from propellant to initiator, inflator and final assembly of airbag system, as well as the seat belt system.

Going forward, after our spin-off of Veoneer, we have a solid foundation for continuous growth and an even stronger focus on creating shareholder value and saving more lives. Today, we will give participants a more in-depth understanding of our continuous improvement activities and our journey toward Industry 4.0. We will also demonstrate innovation in automotive safety as well as in adjacent product areas and discuss the road ahead beyond 2020. I hope to see all of you at our 2019 Capital Markets Day.

And by that, I will now hand back to Anders.

Anders Trapp -- Vice President of Investor Relations

Thank you, Mikael. Turning the page. This concludes our formal comment for today's earnings call and we would like to now open up the line for questions. So, I'll now hand it back to you, Sarah.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And your first question comes on the line of James Picariello from KeyBanc Capital. Please ask your question. Your line is now open.

James Picariello -- KeyBanc Capital Markets Inc. -- Analyst

Hey good morning guys. Just trying to dig into the launch related costs in the quarter. Trying to get a sense for, you know if you could quantify maybe what that looks like in the quarter and what your expectations are for the remainder of the year, it sounds like you know there's going to be some spill over for the next quarter or so, just trying to get a bridge to your full year framework and really digging in on the launch related stuff.

Mikael Bratt -- CEO

So, as we have described earlier, I mean we saw elevated launch costs during 2018 here and we have then indicated that it will take several quarters for us to get that back into the levels that it should be. And, we also talked about the number of measurements that we took to make that happen and that we would see a gradual improvement during 2019 and what we're saying here now is that those measurements are biting and getting effects and seeing effects to our entire bottom line.

So, we are tracking toward the expectation to see that gradually improve during 2019. We haven't quantified it before and of course, we can't quantify it in the -- we won't quantify it in the quarter either. But the message here is really that we are following our plans to resolve that situation.

James Picariello -- KeyBanc Capital Markets Inc. -- Analyst

Understood. I guess maybe asked another way. I know you don't -- you're not providing quarterly guidance, but can you just give us a sense maybe of the first half or second half cadence that gives you the confidence in the full year framework?

Mikael Bratt -- CEO

No. As we stated when we gave the guidance for the full year, we said that the first half of 2019 will be, call it the tougher part of the year than the more improving part during the second half year. So, in that sense it is back end of the year where, I mean the gradient of the improvement will be seen. So, I mean we have said that around connect it (ph) then to the light vehicle production development and of course our launch cost situation here. That also is gradually improving during the year.

James Picariello -- KeyBanc Capital Markets Inc. -- Analyst

Okay. And then just one on the recent announcement by the U.S. on expanding their probe for the ZF airbag control unit. I believe it's now like 12.3 million units. Would this potentially require the replacement of the airbag or just the ECU, just trying to get a sense for whether this could be an additional replacement opportunity for you?

Mikael Bratt -- CEO

We do not have any information about that. This is a specific question related to ZF and it is the ECU component there that it's related to, so it's a ZF specific question. So no report (ph) around that. Thank you.

Operator

Thank you. And your next question comes from the line of Agnieszka Vilela from Nordea. Please ask your question. Your line is open.

Agnieszka Vilela -- Nordea -- Analyst

Thank you. I have a question on your statement that Q1 result was in line with expectations. Do you mean your sales performance in the quarter? Or do you also mean the underlying EBIT result?

Mikael Bratt -- CEO

We also mean the underlying result here. So as we stated, I mean we saw a year here where the first part of the year is more challenging. And with that the forecast we had leading up to the 10.5% EBIT margin -- adjusted EBIT margin, we are following that and as we indicate that here we are in line or slightly better even if you consider the (inaudible).

Agnieszka Vilela -- Nordea -- Analyst

Okay. And the Mexico issue was known when you guided for the full year already. And also what do you think about the kind of inflationary pressures from delivery in Mexico going forward? Thanks.

Mikael Bratt -- CEO

Mexico was not known for us at the time when we guided for the full year. So that was not be including our plans here. This was an isolated situation with the social unrest in the Matamoros area and we have no indications or signals or thinking around that it should mean inflationary pressure on Mexico in large. So this is -- it's an isolated question.

Agnieszka Vilela -- Nordea -- Analyst

But the minimum salaries in Mexico are rising and you have 20% of your head count in Mexico. Isn't it affecting you?

Mikael Bratt -- CEO

No, I think when it comes to the minimum wages, we were on the right side of that from the beginning. So that had a very limited impact to us, we were on the right side so to speak on that. But then then this was then on top of that and it was as I said a social unrest in that particular area. So, I would say that what you're referring to here as the minimum wage increases that's already managed and taken care of in own books as we speak (ph).

Agnieszka Vilela -- Nordea -- Analyst

Okay. Perfect. Thank you.

Mikael Bratt -- CEO

Thank you.

Operator

Thank you. And your next question comes from the line of Joe Spak from RBC Capital Markets. Please ask your question. Your line is open.

Garrett -- RBC Capital Markets -- Analyst

Hi, this is actually Garrett on for Joe. Can you just walk through the factors that give you confidence in hitting the 10.5% margin target for the year after the 7.7% in 1Q, I mean it seems like you need to average kind of in the middle 11% range for the rest of the year, which would all seem like record quarter. So, just walk us to the confidence in hitting that and then what's driving that implied improvement?

Mikael Bratt -- CEO

I think, first of all as I said here, I mean, we see that the plan we had -- the financial plan we had for the full year, we are starting the first quarter in a good way with the underlying performance here and we are in line or slightly better than what is all there, even considering then the additional headwinds we saw in the first quarter. So, I think, the organization here managed the sharp decline in a very good way. And I would say also the recovery work around the Matamoros situation even as we see here, came at a cost, so that give us confidence around the underlying performance. Then as we said here, I mean, it is built on improving second half here from the beginning and it will also related to the light vehicle production.

We are not changing our prediction there. I mean we had minus 1% light vehicle production already when we guided for the full year and it still stands. And we also now see that IHS have come in and show also minus 1%. So, that is also according to plan. Then our -- also improvements as I said in the elevated launch cost is giving results and also there we can see that is biting and giving confidence for the rest of the year, based on what we saw in the first quarter.

But, of course, I mean, the bar has raised with this additional headwind, but we believe the actions that we are taking now on a group level here on everything from hiring freeze to reviewing all types of costs of funding and projects here to mitigate that let's call it additional headwind here. So, we are working on it and according to our plan.

Garrett -- RBC Capital Markets -- Analyst

Okay. That's helpful. And then just on the light vehicle production declines, kind of, having a disproportionately negative impact on the mature platforms. I mean the outlook for 2Q light vehicle production is also challenging. So, won't that kind of -- that margin impact repeat in 2Q.

Mikael Bratt -- CEO

Yeah, I think of course the mix of that is difficult for us to see exactly at this point, but as I said, we indicated already in our regional plan here and guidance that Q1 and Q2 would be challenging and that we see now also, especially in China, but when it comes to the overall light vehicle production on an (inaudible) global level, I think we have no reason to believe that it should be worse than what we have said here at this point in time and also the positive signals we get from some of our local OEMs in China indicating also a better second half of 2019.

Garrett -- RBC Capital Markets -- Analyst

Okay. Thanks so much.

Mikael Bratt -- CEO

Yeah. Thank you.

Operator

Thank you. And your next question comes from the line of Andrea Abouchacra from One Investments. Please ask your question. Your line is open.

Andrea Abouchacra -- One Investments -- Analyst

Yes. Hi. Thank you for taking the question. I have a couple. First, one looking at your moving parts margins and the current mix. Do you need to cut production to return positive growth to see the sort of net benefit in profitability given the unfavorable mix that you have between the established business and the new launches? This is the first one.

Mikael Bratt -- CEO

Our guidance is based on the last week in production I referred to here and which we set to minus one for the full year. So, that is the baseline for our assumptions here.

Andrea Abouchacra -- One Investments -- Analyst

Okay.

Mikael Bratt -- CEO

So no, it does not need to be improved from 2018.

Andrea Abouchacra -- One Investments -- Analyst

Okay. Then thanks for the slide nine, very useful to understand the path for the new product cycle, was just wondering what is the timing for the introduction, sort of lead time for the new launches to reach at least group profitability if you can give us a sense what is that. How long is the introduction phase on average?

Mikael Bratt -- CEO

I think I mean it's the generic description of how long it takes to get the program up to the expected performance levels. I would say it's a two, three-year time lag until you get to, let's call it, the peak level or the expected levels. You have a ramp up period that is relatively long. And the challenge for us now, of course this is a situation where we have a sharp decline on the running portfolio, as a consequence on the light vehicle production at the same time, we have exceptionally high launch activities here. So, the portion of the portfolio there and the mix effect of that is of course impacting us here.

Andrea Abouchacra -- One Investments -- Analyst

Okay. If...

Mikael Bratt -- CEO

So, it's not between the quarters here, the ramp up of the program takes a longer time.

Andrea Abouchacra -- One Investments -- Analyst

Right. Thank you. If I may just the last one, if you can give us an indication of what was the capacity utilization in Q1 or at least how much lower was that year-over-year? Thank You.

Mikael Bratt -- CEO

We don't have -- as you know our production is -- and assembly lines is very much dedicated lines to respective programs. So, in order to give a meaningful number there, we don't -- we need to look at each line to get that. So, it's not on an aggregate level we are looking at that. We are of course measuring (inaudible) per line and in the respective plans depending on what they are doing, there's big difference in our different processes here. So, unfortunately I can't give you a total number for the company in that respect it is to be viewed at more on a lower level so to speak.

Andrea Abouchacra -- One Investments -- Analyst

Okay. Thanks a lot.

Mikael Bratt -- CEO

(Multiple Speakers) it has an impact.

Andrea Abouchacra -- One Investments -- Analyst

Okay. Thanks a lot for the answers.

Mikael Bratt -- CEO

Thank you.

Operator

Thank you. And your next question comes from the line of Erik Paulsson from Pareto Securities. Please ask your question. Your line is open.

Erik Paulsson -- Pareto Securities -- Analyst

Yes hello. This is Erik. I was wondering about the pedestrian protection airbag that you now launched for the Range Rover Evoque here. What is your market expectations going forward for this type of product? And do you think it will be a standard and if it will be a standard, how long will this take in the different geographic markets?

Mikael Bratt -- CEO

The pedestrian protection airbag is something that we have had worked with for quite some time. And of course, we see a gradual increase, not a strong increase at this point in time, but the interest is increasing. I mean, the minority of -- not minority but half of the facilities on the roads is leading to what we call then the vulnerable road users where the pedestrian airbag comes into play and we also see that with electrical vehicles where it's not easy to -- as they are very silent, there could be incidents -- there is incidents also where the vulnerable road users are exposed and there we see also an increasing interest from those types of vehicles. So gradually we see an increase of the interest there. I wouldn't like to say that it's a meaningful ramp up here in the short-term but in the medium-term we see good opportunities here.

Erik Paulsson -- Pareto Securities -- Analyst

Okay, great. Thank you very much.

Operator

Thank you. (Operator Instructions) We will now take our next question. It comes from the line of Cyprian Wong (ph) from Bernstein. Please ask your question. Your line is now open.

Cyprian Wong -- Bernstein -- Analyst

Hi there, thanks for taking my questions. I had a couple with regards to your discussions with your customers. Firstly, on pricing.

Mikael Bratt -- CEO

You are breaking up there.

Cyprian Wong -- Bernstein -- Analyst

Hi there. Can you hear me?

Mikael Bratt -- CEO

Yeah, I hear you.

Cyprian Wong -- Bernstein -- Analyst

Sorry. I've got a couple of questions with regards to discussions with your customers. And the first one on pricing, are you seeing any higher price pressure than normal or any higher than normal price reduction requests? Or are you still in that 2% to 3% range that you gave?

Mikael Bratt -- CEO

No, I can't say that I see higher pressure, I would say that it is always a very competitive business and has been. But we are still within that range you were mentioning in 2% to 4%, so no changes to that.

Cyprian Wong -- Bernstein -- Analyst

Okay. And then the second one on raw materials, you said you are negotiating reimbursements with your customers. What level of reimbursement are you assuming in your full year guidance for the raw material headwinds?

Mikael Bratt -- CEO

First of all we don't have any automatic (inaudible) on raw materials here. It's always commercial discussion and we can't, I mean have a figure for you here to say how successful or unsuccessful we've been in that dialogue. So that's of course a part of the activities we have here when it comes to managing the raw material as such I mean it's everything working with our suppliers to see how you can control it.

And then also working with our customers to see how we can offset it and it depends of course also how the raw material increase looks like if it's ordinary fluctuations or if there is a specific situations that calls for compensation to the whole value chain here. So that's a constant work ongoing here. But what we have said here is that I mean 0.4, I mean the 40 basis points raw material increases we have indicated for 2019 year-over-year is as a result most likely to increase with another 10 (ph) basis points here. So we're talking 60 basis points for the full year here and that's the net effect that we are seeing there.

Cyprian Wong -- Bernstein -- Analyst

Okay that's very clear. Thank you.

Mikael Bratt -- CEO

Thank you.

Operator

Thank you. Your next question comes from the line of Julian Radlinger from UBS. Please ask your question. Your line is open.

Julian Radlinger -- UBS -- Analyst

Yes. Thank you very much for taking our questions gentlemen. Two from my side. So, the first one. Just a clarification, whether you're including the Mexican labor issues that you've experienced in Q1 in your full year guidance? And if you are including them, is it right to say that you just lost around $20 million of EBIT for the full year in Q1, that you think you can get back in the remainder of the year and because of that you're maintaining the 10.5% margin guidance or how should we understand this?

Mikael Bratt -- CEO

It was not included in the regional guidance when we gave it in connection with Q4, but it is included in the guidance, confirmation of the guidance of the 10.5% now. So, we expect to be able to offset that through our work here that we're doing for the remainder of the year. So, that's where we are.

Julian Radlinger -- UBS -- Analyst

Okay. So, could I say that you've implicitly gotten more optimistic about the cost reduction or efficiency improvements and so forth, you think you can achieve in the remainder of the year versus two months ago or three months ago?

Mikael Bratt -- CEO

I would refrain from saying more optimistic or less optimistic. I can conclude that we are tracking according to our own plans here toward the 10.5% and with the Matamoros situation, we are saying that we believe that we will be able to -- we should be able to manage to get the support of the work that we're doing remainder of the year here and once we got (inaudible) increased. But we believe it is doable.

Julian Radlinger -- UBS -- Analyst

Okay. And then my second question is regarding the 135 bps operational headwinds that you show in your operating margin bridge. I'm a little bit surprised about that because in Q3 and Q4 mature markets like Western Europe were also down quite substantially. And, yet the operating headwind part of your EBIT bridge wasn't as negative, not even close to as negative as it was now. And, on top of that now you're saying that launch costs were actually less of a headwind in the bridge versus Q2 for instance. So, can you just explain what was different about Q1 now, the headwind from these mature platforms or in these mature markets, compared to Q3 and Q4?

Mikael Bratt -- CEO

I think, I mean, if you look at the sequential development here from Q4 to Q1, what is happening here also is that I mean you have the seasonality effect here. I mean Q4 is a strong quarter when it comes to engineering income. So, you get some positive effects from that and also in the numbers you see here for Q1 we have the Matamoros which is 1% units included there and also engineering income and Matamoros alone is 200 basis points and then you have the ordinary seasonality between the quarters here, where Q1 is a weaker quarter. But, you have to consider those factors also when you look at the different quarters in the year.

Julian Radlinger -- UBS -- Analyst

Okay. I'm honestly a little confused about that because the bridge is a year-on-year bridge not a quarter-on-quarter bridge.

Mikael Bratt -- CEO

Yeah. But your question was in relation to Q3 and Q4. So, that's why, I thought you were talking about that reference. Because, if you look at year-over-year, then I think, it is these effects that we have described here, the different components here, we have the raw material 80 basis points. We have Matamoros 100 basis points and you have then the operational headwinds with 140 basis points, where of course the ramp up portion of the portfolio is even higher this year than the last year. So, the portfolio mix impact becomes stronger more we ramp up new programs at the same time, the light vehicle production of the running portal is coming down.

Julian Radlinger -- UBS -- Analyst

Okay. Yeah. Okay. That makes more sense. Okay. Perfect. Thank you very much.

Mikael Bratt -- CEO

Thank you.

Operator

Thank you. And your next question comes from the line of Erik Golrang from SEB. Please ask your question. Your line is now open.

Erik Golrang -- SEB -- Analyst

Thank you. I have two questions. The first one is on the organic growth guidance for the full year and should we read it as I guess for the second half, it's primarily based on HIS, on the underlying market before the second quarter it's sort of a blend of your own call offs and the IHS number, given that you say that there's downside pressure to IHS. Is it a mix more or less?

Mikael Bratt -- CEO

Yeah, you could say that and as we have said before here, I mean when we launched the first half of the year we saw a little bit weaker market and what IHS had at the time and what has happened since Q4 earnings call is that IHS have now come to where we were meaning minus 1% for the full year. So, it starts to correlate there.

Erik Golrang -- SEB -- Analyst

But your own sort of input limits itself I guess to the near-term. So for the second half (multiple speakers).

Mikael Bratt -- CEO

So the second half is fully IHS. Yes.

Erik Golrang -- SEB -- Analyst

Thank you. And then the second question is on the raw material side 80 bps headwind in Q1, did I hear correct that you expected 60 bps headwind for the full year?

Mikael Bratt -- CEO

Yes, that's correct.

Erik Golrang -- SEB -- Analyst

Okay. And that's up from previous, right, was that the case previously as well?

Mikael Bratt -- CEO

Yeah, yeah, before we expect that 40 basis points up from 2018 to 2019. Now we're saying those 40 is 60.

Erik Golrang -- SEB -- Analyst

Okay. So that really comes, you've had the headwind both from the Mexico issues and additional raw mat pressure but you're still sticking to that that full year guidance. So, I guess this is a repeat of previously asked question but there's quite significant room for improvement there that you've now been able to identify?

Mikael Bratt -- CEO

Yes. So I mean, the bar has increased for sure. But as I said I mean what we see in the first quarter in terms of our underlying performance and in relation to our own forecast there, I mean we have (inaudible) good in the first quarter.

Erik Golrang -- SEB -- Analyst

Thank you.

Mikael Bratt -- CEO

Thank you very much.

Operator

Thank you. And your last question at the moment comes on the line of Brian Johnson from Barclays. Please ask your question. Your line is now open.

Steven -- Barclays -- Analyst

Yes, hi team. This is Steven on for Brian. Just a quick question on the temporary personnel cuts that you called out, sounds like that could be one of the key drivers around improvement and margin improvement to offset some of these headwinds that have been discussed. Just wondering if any of (multiple speakers).

Mikael Bratt -- CEO

Excuse me, I hear you very badly. Could you?

Steven -- Barclays -- Analyst

Yes, just looking at the temporary personnel cuts that you called out. Just wondering if you can give us some color as to the regions and product areas where you're making the specific cuts, it sounds like this is one of the key areas that's helping offset some of the operational headwinds you saw in Mexico in 1Q along with the raw material headwinds.

Mikael Bratt -- CEO

I think I mean we are assessing that plant by plant, function by function where we need to do the adjustments wherever we can, take out the temporary personnel et cetera. So, I would say it's not (inaudible) here. It's really surgical where we have the opportunities in different areas. What we have done though compared to I would say ordinary course of business here is that we are taking a more group view on activities and tracking the progression on activities connected to that.

Steven -- Barclays -- Analyst

Okay. I mean would you say that's the key driver of the kind of margin offset from the headwinds related to higher raw mats in 1Q and the Mexico issue or is there other key drivers outside...

Mikael Bratt -- CEO

There is of course other activities also I mean, I think it's a range of activities you need to do, to do this. I mean first of all it is to do what we have described here to make sure that the launch cost is completely gone and that we get the productivity where it should be and we are looking at the discretionary spending, we are reviewing our different CapEx projects, we are looking at the starting situation (inaudible) et cetera, et cetera. So, it's an array of different initiatives and activities.

Steven -- Barclays -- Analyst

Okay. Thanks for taking the question.

Mikael Bratt -- CEO

Thank you.

Operator

Thank you. And your next question comes from the line of Hampus Engellau from Handelsbanken. Please ask your question. Your line is now open.

Hampus Engellau -- Handelsbanken -- Analyst

Thank you. Two quick questions from me. First, if you could comment on the market share in order intake during the quarter and in that, it's new OEMs or if it's already one OEM that are adding more models to your order that is driving market share currently? Second question is, if you could maybe update us on this electronics, mechatronics business that you are setting up and what that is targeting? Those are my two questions. Thanks.

Mikael Bratt -- CEO

Yes. Thank you, Hampus. On the new order intake side, we don't give number percentage more than for the full year and once a year. But at this stage, the report is that it's continuing on a good level also in the first quarter year and it is several OEMs making up the total order intake here and I would say we have also on a global perspective in good distribution there. So, it's not only in one region either. So, I would say in terms of distribution of orders it's normal patterns. So, nothing particular there.

When it comes to the electrical mechatronics activities, it's a part of you could say our tech centers and our RD&E capabilities here to meet the customer demands when it comes to, let's call it the electrification or our type of products. So, you can look at the steering wheel with HMI features. That needs to be there. It is also in the seat belts and airbags, communication with the rest of the vehicle et cetera. There is a lot of opportunities for us to add, I would say more sophisticated and involved product also as the vehicle in itself allows those possibilities here. So, that build up is also going on according to plan here. In certain parts of the world where we have to focus for this.

Hampus Engellau -- Handelsbanken -- Analyst

Is there any overlap with what Veoneer is doing in the business of setting up.

Mikael Bratt -- CEO

No. This is absolute. They're not overlapping and it's not the type of either products or communication that they are working with. So, it's, I would say our portion here is what you see in many other types of areas where the products have the capabilities of communicating with. I mean through the new technology that is coming, so it is more to create the interfaces here.

Hampus Engellau -- Handelsbanken -- Analyst

All right. Thank you so much.

Mikael Bratt -- CEO

Thank you.

Operator

Thank you. And your last question comes from the line of Alexandre Raverdy from Kepler. Please ask your question. Your line is now open.

Alexandre Raverdy -- Kepler -- Analyst

Yes hi. Thank you for taking my question. I just had one last please on the testing what do you hear from your customers. Do you feel that there will be some sort of disruption in the production or do you feel that they are much better prepared than last year?

Mikael Bratt -- CEO

I think I mean it's a difficult for us to have an insight in it, more than what the customers are telling us, from their side, we don't see any disruption here. But of course, why we're listing it here. Because that's something of course that we need to keep an eye on. So, we follow the developments. It's a less of a rigid process than WLTP was. So, I think there is a better chance to have a smoother introduction of these new testing here. But we need to keep it on the radar screen here.

Alexandre Raverdy -- Kepler -- Analyst

Okay. Thank you.

Mikael Bratt -- CEO

Thank you.

Operator

Thank you. And you can continue. There are no further questions.

Mikael Bratt -- CEO

Okay. Thank you very much Sarah. And before we then end today's call. I would like to say that we will continue to execute on our growing business volumes and new opportunities with a never-ending focus on quality and operational excellence. Also, I should mention that our second quarter earnings call is scheduled for Friday, July 19, 2019. And once again thank you to everyone for participating in today's call. We sincerely appreciate your continued interest in Autoliv and hope to have you on the next call. Goodbye and wish you all a nice weekend.

Operator

That does conclude your conference for today. Thank you everyone for participating. You may now disconnect.

Duration: 70 minutes

Call participants:

Anders Trapp -- Vice President of Investor Relations

Mikael Bratt -- CEO

Christian Hanke -- Interim Chief Financial Officer

James Picariello -- KeyBanc Capital Markets Inc. -- Analyst

Agnieszka Vilela -- Nordea -- Analyst

Garrett -- RBC Capital Markets -- Analyst

Andrea Abouchacra -- One Investments -- Analyst

Erik Paulsson -- Pareto Securities -- Analyst

Cyprian Wong -- Bernstein -- Analyst

Julian Radlinger -- UBS -- Analyst

Erik Golrang -- SEB -- Analyst

Steven -- Barclays -- Analyst

Hampus Engellau -- Handelsbanken -- Analyst

Alexandre Raverdy -- Kepler -- Analyst

More ALV analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

More From The Motley Fool

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.